By Mitchell Katz
Beyond knowing birthdays, anniversaries, names of spouses and children, the most meaningful personal connections with clients often involve their hobbies or passions.
With high-net-worth clients, in particular, those passions often include exotic and vintage automobiles, which represents an opportunity to build relationships that very few wealth advisors explore.
Exotic and vintage cars have long been a passion and an enduring aspect of the lifestyle for many people of wealth. For serious enthusiasts—whether they own a Ferrari, Lamborghini, Aston Martin or Bentley as a “daily driver,” or maintain a portfolio of high-end vehicles for investment purposes—these cars represent an alternative asset class with significant market value. In that respect alone, exotic and vintage cars are a legitimate topic that wealth managers should be prepared to discuss with clients on an informed basis.
To build client relationships with HNW auto enthusiasts, wealth managers are not required to know current market values of specific marques: to advise a client on whether $5 million is better spent on a 1958 Porsche 550 Spyder or a 1979 Porsche 935; or to attend Pebble Beach Concours D’Elegance each year. What advisors should know, however, is how those assets are best acquired and disposed of, which includes the following considerations.
Outright Purchase Is Often Ego-Driven
People of means are often predisposed to simply write a check for a very expensive vehicle. Their decision to purchase a car outright can involve an emotional bias that any form of car financing is strictly for the “aspirational” wealthy; not for those who’ve already arrived. Unfortunately, that point of view is often fueled by ego, rather than objective financial analysis.
Serious Car Enthusiasts Turn Over Cars Frequently
People who really love cars have insatiable appetites for new and different driving experiences, and on average, change cars every 18 to 30 months. This is a very important consideration in determining the most appropriate means of acquiring and disposing of those vehicles, in terms of cash flow, use of funds and tax considerations.
Car Financing Advice from Financial Gurus Doesn’t Apply
Advice from Suze Orman and other mainstream media “financial experts” often doesn’t apply to the needs of HNW car enthusiasts. Traditional lenders, for example, are unlikely to assist your client in financing an acquisition of a $2 million Ferrari. And the type of rigidly structured, closed-end car leases these advisors warn consumers to avoid like GMAC, VW Credit or BMW Financial Services, are unlike specialty leases that are tailored to meet the needs of wealthy individuals who have a passion for expensive cars.
Specialty Leasing Accommodates the Wealthy
To satisfy their endless appetite for fine cars, address short- and long-term cash flow requirements, and avoid saddling HNW owners with heavy penalties and fees, specialty lease providers provide options that allow lessees to:
- Pay the balance of the lease and own the car.
- Sell the car privately, pay the balance, and keep any difference.
- Trade the car in, have the dealer pay the balance, and keep any difference.
- Switch cars within their lease without penalty, by paying any difference in value between the two cars.
- Refinance through a new lease without large cash outlay and continue to own the car.
Financial Opportunities Are Often Overlooked
What many well-heeled clients don’t understand is that specialty leasing arrangements for new and previously owned cars can provide significant benefits beyond the flexibility to change cars without penalty. For example, in many states, the sales tax on an exotic car, which can be substantial, is applied to the monthly payments, rather than being paid in full upfront. Additionally, the car can often be leased under a business name (not necessarily a corporate entity) using pre-tax dollars for lease payments.
At the very least, financial advisors would be well-served to counsel HNW clients to take a “level playing field” approach, by calculating the use of funds factor in outright purchase versus leasing; to compare the payments and terms of a traditional loan with those of a specialty lease; and to always require a full amortization schedule upfront from any lease provider.
This very basic understanding of exotic and vintage car financing may, in fact, provide a wealth advisor with greater insight than their HNW client currently possesses. In some cases, this may also be more than the client’s accountant knows about this esoteric topic.
Mitchell Katz is founder and CEO of Connecticut-based Premier Financial Services, one of the most respected providers of specialty lease financing for exotic, vintage and luxury cars.